Q&A: Petrobras CEO Vows to Catch Up in Energy Transition

Energy Intelligence recently sat down with Petrobras CEO Jean Paul Prates, who took the helm of the Brazilian oil giant earlier this year. In this exclusive interview, Prates discussed the future of oil demand and how state-controlled Petrobras must accelerate its low-carbon investments to stay relevant amid the accelerating energy transition. An edited transcript of the conversation follows.

Q. There has been a lot of discussion about expanding Opec membership here. Brazil is a major oil exporter. What do you think about Brazil joining Opec?

A. Most of the oil companies nowadays live the challenge of developing the energy transition while flying. They need to produce more oil, they need produce more gas. They still run on oil and gas for their cashflows to do the energy transition. How can we do our energy transition, taking into consideration that we are an offshore operator of high quality, with a high level of sustainability in our activities, having consideration of the fact that wind offshore, for instance, is something simpler than taking oil from four kilometers down the earth's crust in 2,000-3,000 meters of water depth? What can we do with that? And then what will be needed for us to, at the same time, secure oil and gas production for the world that will still remain dependent on oil and gas while doing this transition? This is a good challenge to propose into an expanded Opec. If we see Opec just as the exporter countries, it's limited. It's okay, but if we go into the aspect of what an exporting country will need to do in the future, having in mind that oil is going to be needed for the next 40, 50 years, what can we do? What are the state company's roles in that? That is something that would attract us to support an expanded Opec. Because we as a country are now a big producer. We are a big exporter as well. So what to do, how to do the transition, how to take our synergies into the new industries that will emerge — hydrogen, wind, solar, energy transportation, energy storage, electric mobility, biofuels, new refining, petrochemicals or biochemicals — this is interesting to look at.

Q. Petrobras had been selling downstream assets, but it seems the new administration is interested in a more integrated strategy. How are you thinking about integration at Petrobras?

A. We thoroughly believe that integration is needed for the energy transition. The normal fact — widespread in the industry — is that integrated companies do better than the non-integrated companies, especially when they are national companies. It makes sense within the context of old oil and gas thinking. But it also makes sense in our view into the transition because we will have the leverage over upstream, midstream and downstream to do the transition in each one of the segments, and being verticalized definitely helps. So this is why we decided not to sell anything from refining, maybe going into petrochemicals, maybe going into fertilizers again, but with a new look, with a new approach, a sustainable approach, maybe going to downstream again, getting into the consumer side. Not necessarily by rebuying or nationalizing anything. It’s just business per business. We think it's good because of business and because of our growth into the energy transition. So I think verticalization makes sense. We have already a very successful system of companies especially in the refining business. We have a good system, a complementary system of refineries that work very well together. They do not compete, they help each other. And that helps serving the company and the country with the best prices we can do. We notice that where the refineries were sold, now, this is the highest price in the regions. 

Q. Can Petrobras compete with cheap fuel imports that are looking at Brazil as a potential destination market?

A. We're not worried. If we go back to the system where we have our complementarities in line, we can always do the best price we can for Brazil. If we get product from abroad, because we have volumetrically the need of still importing diesel, for instance, it's better to have good price for it anyway. We're not afraid of losing market share. We were losing market share before because we were leaving our refineries halfway, deliberately, to give a space to importers. We don't need to do that anymore, but we don't need to be aggressive against importers. We just have to live with the market forces the way they are and react when we can react. If we are not able to react; if it costs us a lot of effort or money or profitability, we will not do it. But we're not specifically concerned about the one company or another or one origin or another from product imported into Brazil.

Q. In terms of crude sales, you're selling more to Europe and selling less crude to China and India. Are you worried about losing the Chinese and Indian markets or about Europe’s long-term demand?

A. I think in crude sales and exports we still have to look at markets. With the war and all the geopolitics that is going around right now, the European opportunities emerged pretty well and we are going to tackle them. If we don't move, somebody else will move. I mean, there's no empty space here. And I don't think it's disconnected with our strategy. Doing good partnerships and doing good business with European parties is part of our plan, including in the energy transition. So we're talking with Equinor. We're talking about good partnerships with Shell in renewables as much as in oil and gas. I think it's part of the business. If Asia is getting their oil another way, we are getting into Europe, that's okay. In another time, it may revert again. The fact is that we have to export our oil.

Q. Why do oil prices seem stuck at $75? What's your view on what's driving the oil market right now?

A. I think we should look inside the demand to the factors of consumer habits themselves. Look at what our kids are doing, how they're consuming their energy, how they are being transported or how they're moving around, how they're traveling. I think we have to look at the consumer habits to find the mysterious reason why demand is going up and prices stick. I think it has to do with that. We are looking at that right now in Brazil in terms of car sales. President [Luiz Inacio] Lula [da Silva] just recently launched another package of incentives for car manufacturing for instance, and it didn't move so much. The factories are still full of cars. So why are people not buying cars? Is that a movement that comes with the Covid effect or public transportation coming back? Something is happening there. And in industry we should at least look at natural gas as an element as well. Probably natural gas is making a difference as well for oil consumption.

Q. Are CNG-powered vehicles really cutting into oil demand in Brazil?

A. Definitely. Natural gas markets are part of the direct competition with oil itself. So I would look at both things — consumer habits and natural gas penetration.

Q. What does this mean for the future of oil demand?

A. It means that we have to live with a price that is more stagnant. There's going to be a last bubble of pricing in the oil cycle. This is going to be when most of the private and more agile companies do their energy transition and the ones left to produce are the state companies and some integrated companies and some independents. When will it happen? I don't know — three years, five years, 10 years — but there's going to be a last oil crisis when some of the oil companies are in a non-reversible situation. Right now, they're still reversible. We could see the moves in BP and Shell. We can say that they go and they come back when there's a war or something. But there's going to be a time that some of these guys are going to be on the other side and they won't be able to come back because of the public claims and whatever. These are going to be left out of the oil supply. And all of a sudden, we will be caught by the fact that only Opec producers, some here and there will be the only producers, and they will have some control back again. But that is not now.

Q. And after that demand declines?

A. After that, the pressure will be only on the transition effect. After all, we're talking about the substitution of much simpler solutions. Even though it takes time for viability to occur, solar, wind and all the other solutions even though not complete, they're much cheaper. They're much cheaper and technologically much simpler. You don't have humans living on platforms. We don't have flammable liquid circulating in pipelines, etc. All you have is collecting wind or collecting light from the sun. So it's fortunate for humanity. So the ones that are big in oil and gas should be big in energy as well.

Q. How important will renewables be to Petrobras in 20 years?

A. I don't know. I cannot tell you because the strategic plan cannot say that right now. But I would guess individually that we would have at least three times the portfolio we have now — which is almost nothing — in renewables in five years. I think it's a fair target for a company that was almost 10 years lagging behind in energy transition. We have to now run fast because the others went into it and we stayed behind. We are pretty much seven to 10 years lagging behind. We were coming into wind in 2008. We left all that. We had euphoria in oil and gas with presalt. We came down to depression with Car Wash. And now we have to go back to normal times. We are now flat analyzers of the market and flat deciders of our investments.

Q. But will you be one of the last producers standing that you talked about?

A. Yes, we are keen to do it. We have our role. We still have the need of being the oil company of Brazil for some time. So we will need to replace reserves. We need to go to new horizons, new frontiers in Brazil, in the north, in the northeast, in the Campos Basin. We will need to revisit our geology. We will do re-exploration in basins. We have new technologies, visualization. We need to use all these tools to revisit our prospects, because this is also a decarbonized operation. Going back to the same places where we developed, going back to places where we already have infrastructure there for other fields. This is part of the business as well. This is important.

Q. What about investing in assets abroad? Does that have a role in the strategy?

A. We will look first at neighboring and very similar environments. Let's say Suriname, for instance, Bolivia for gas, Argentina for gas. That all will depend on the fiscal regime and the conditions and the areas that are offered to us. Maybe go back to West Africa, visit Angola, Namibia — not much more than that but things that would make sense for us.

Q. What about exploration in Foz do Amazonas? What is the status of your operations there?

A. Foz do Amazonas is going well. We are making good dialogue with Minister (of Environment) Marina (Silva) and with Ibama (Brazilian Institute of the Environment and Renewable Natural Resources). We will definitely have the license sometime, not necessarily right now. We respect Ibama as the organization that knows what to do. We recognize the fact that they had to change the whole management and the way of doing things. And this is good for Brazil in general, even though it imposes on us more time. But we respect that fully. And we respect the points of view of the minister, Marina Silva. I consider myself an environmentalist as well. I have a master's in energy management and environmental policy. And I've been saying that to her all the time. We are both on the same side. And if there was need for more time to study and then get the license, they recognize the fact that it is necessary. There's a necessity to go and assess if there's oil there... but that will be very much in consensus. We won't fight against Ibama. It doesn't make any sense for us to fight against Ibama or the Ministry of Environment, we will go along together.